S&P 500 Tumbles on Escalating Ukraine Crisis, APAC Posited Lower

S&P 500, NIKKEI 225, ASX 200 WEEKLY OUTLOOK:

• Dow Jones, S&P 500 and Nasdaq 100 indexes closed –1.43%, -1.91% and -3.07% respectively
• Risk-off sentiment was prevailing as investors mulled escalating Russia-Ukraine tensions
• Asia-Pacific markets look set to follow a negative US lead. Crude oil prices hit fresh 7-year highs

Ukraine Crisis, US Earnings, Inflation, Crude Oil – Asia-Pacific Week-Ahead:

Wall Street stocks ended a volatile week with a sour tone as investors weighed escalating geopolitical tensions at the border of Russia and Ukraine. US National Security Adviser Jake Sullivan said on Friday that there were signs of Russian escalation at the Ukraine border and that it was possible that an invasion could take place during the Olympics. Gold prices surged alongside crude oil, which are trading at their highest level since 2014. Equities pulled back broadly amid risk-off sentiment, with the tech-heavy Nasdaq 100 falling over 3%.

Lingering geopolitical unrest and fears about the Fed tightening monetary policy may continue to suppress risk assets in the near term. Last week, higher-than-expected US CPI figures and hawkish comments from Fed officials sent shockwaves through the markets. Investors are increasingly convinced about the possibility of a 50bps rate hike at the March FOMC meeting, sending the US Dollar higher and stocks lower.

On the earnings front, over 70% of the S&P 500 companies have reported results so far, among which 77% have beaten market expectations with an average earnings surprise of 8.6%. The blended earnings growth rate for those companies is 30.3%on year, marking the fourth straight quarter of earnings growth above 30%, according to Factset. It is worth noting that nearly three quarters of companies have highlighted inflation during their earnings calls, underscoring rising price levels that are having an outsized impact to their margins and operations.

APAC markets look set to kick off the week on the back foot following a sour lead from Wall Street. Futures in Japan, mainland China, Australia, Hong Kong, South Korea, Taiwan, Singapore, India, Thailand and Indonesia are all poised to open in the red. US equity futures extended lower during Monday’s APAC morning session, underscoring fragile sentiment.

WTI crude oil prices leaped 4.3% on Friday and held steadily at the open as investors mulled the impact of the Russia-Ukraine standoff on oil supply. Ukraine is a crucial transit hub for oil and gas between Russia and the European Union, transporting 11.9 million metric tones of crude oil between them in 2021, according to S&P Global. Escalating tensions in the region may add supply constraints in an already tight market, sending prices higher. This may further exacerbate concerns about rising price pressures and strengthen the case for Fed tightening to contain inflation.

For the week ahead, Wednesday’s China inflation and US retail sales figures dominate the economic docket alongside Thursday’s release of FOMC meeting minutes. Find out more from the DailyFX calendar.

Looking back to Friday’s close, 9 out of 11 S&P 500 sectors ended lower, with 80.4% of the index’s constituents closing in the red. Information technology (-3.01%), consumer discretionary (-2.82%) and communication services (-2.54%) were among the worst performers, whereas energy (+2.79%) gained.

S&P 500 Sector Performance 11-02-2022

Source: Bloomberg, DailyFX

S&P 500 Index Technical Analysis

The S&P 500 index may have entered a meaningful correction after breaching below an “Ascending Channel” as highlighted on the chart below. Prices have likely formed a “Double Top” chart pattern last week, hinting at further downside potential with an eye on 4,300 for support. The MACD indicator is about to form a bearish crossover beneath the neutral midpoint, suggesting that selling pressure may be building.

S&P 500 Index – Daily Chart

Chart created with TradingView

Nikkei 225 Technical Analysis:

The Nikkei 225 index breached below a “Symmetrical Triangle” pattern and thus opened the door for further downside potential. Prices have rebounded over the last two weeks, but the overall trend remains bearish-biased. The lower trendline of the “Symmetrical Triangle” has now become an immediate resistance. The MACD indicator formed a bullish crossover, suggesting that buying pressure may be building.

Nikkei 225 Index – Daily Chart

Chart created with TradingView

ASX 200 Index Technical Analysis:

The ASX 200 index returned to the range-bound zone between 7,200 and 7,500, riding a strong technical upswing. Prices have pulled back to the floor of the range looking for immediate support. The MACD indicator formed a bullish crossover beneath the neutral midpoint, suggesting that a technical rebound is underway.

ASX 200 Index – Daily Chart

Chart created with TradingView

— Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter